UPDATE 2: Chairwoman says Russian cbank not to cut key rate before 2017

(Adds details in paragraph 6)

MOSCOW, Dec 2 (PRIME) -- The Russian central bank will reduce the key rate next time only in January–June 2017 because it wants to prevent errors that could arise if the rate is cut too fast, Chairwoman Elvira Nabiullina said in a speech to the State Duma, parliament’s lower chamber, on Friday.

“Our credit policies will be moderately severe over years to come, a year and a half. The key rate is 10% and the next decline is possible, as we used to say, no earlier than in the first–second quarter of next year,” Nabiullina said.

A decision on a key rate reduction will be made only in case of a change in fundamental factors, rather than short-term ones, she said, adding that the central bank’s goal is to prevent inflation overstimulation from changes in the exchange rate of the national currency.

The consumer price growth has slowed down to 6% and will fall a little more by the beginning of 2017, Nabiullina said, adding that inflation volatility in Russia is a factor of uncertainty for business projects and the central bank needs to keep a stable inflation level.

The currency risk for the Russian economy has somewhat fallen in spite of a high oil price volatility. But the oil price dynamics will continue to be a serious risk for the Russian economy, she said.

The central bank is unlikely to raise its oil price forecast in December, she said. “Why? Because firstly, we think that we need time to see a reaction of the market to the OPEC decision and secondly, in order to keep a healthy conservatism in our forecasts.”

Nabiullina separately said that an expected interest rate growth by the U.S. Federal Reserve System will have a limited influence on the Russian economy.

ECONOMIC GROWTH

The chairwoman said that she sees the best way to accelerate economic growth in creation of a predictable business environment, in which the goal of the central bank is to maintain the price and financial stability, and stability of the banking sector.

The central bank sees economic growth at below 1.5–2.0% if no structural changes take place, but this is not the level that Russia must put up with, she said.

Economic development will be uneven across various industries, Nabiullina said.

“We have already seen some shifts in the economic structure connected with imports replacement, development of non-natural resource exports. This means that some industry branches are growing sustainably: agriculture, food chemicals, mining. Nevertheless, there is still a decline in some branches, such as construction, construction materials, market services, some types of trade, transport and logistics which are connected with imports of goods and services,” the chairwoman said.

The banking system is stable, its combined net profit will likely quadruple in 2016, which signifies an improvement of the situation, she said.

But lending to the real sector has room to grow while in fact it fell 1.5% cleared of the foreign currency factor in January–October. “Nevertheless, the capital of banks grew 1% and the capital adequacy is in a comfortable zone of about 12% when the minimum for lending is 8%. This means that banks have a capital reserve in order to raise the lending. We estimate it at about 2 trillion rubles, this is the capital reserve.”

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